Andrew Oswald: Universities need congestion charges, too

Ken Livingstone should be put in charge of higher education. He is an excellent economist. He has just brought in congestion charging on London streets. Road use no longer costs the same everywhere in Britain. That is good.

On the morning of Day 2 of congestion charging, I woke in Regent's Park (not on the grass). It was blue sky above, crispy cold, and life was wonderful. Then I realised why: the traffic was moving quietly. As a bonus, one could happily think, squinting into the low sun at the end of Portland Place, that well-off people were being electronically deprived of money to generate cash that would be spent on activities enjoyed disproportionately by the hard up. Britain's universities need congestion charging, too. We have to have variable fees. Lots of courses are clogged; I constantly find bursting lecture theatres in popular universities; and behind the scenes, whether or not parents are aware of it, some places in higher education are allocated virtually randomly, because when a tidal wave of 15 students apply for each opening, there is almost no sensible way to make a choice among them.

Therefore, we need "course charging", and we need it to be more malleable than the flat £3,000 fee recently set up by the Government. Strikingly different degrees should cost strikingly different amounts.

To understand this, recall that the proper name for congestion charging is road pricing. Yet that terminology has been dropped in our country – probably because the British are still uncomfortable with the idea that prices are the best way to ration things. Any 49-year-old like me has grown up in a gently socialist country, where, without giving it a thought, we were inculcated, day by day in childhood, to think that it is the government that should provide things "free". I still recall my unhappy astonishment on moving to a small American town to discover one had to pay to have the garbage taken away. What sort of uncivilised nation is this, I thought? It is the state's job to take away my old soup tins. Yet everything worked beautifully: my rubbish had, and has, never been taken away as reliably in England.

Prices are great. They are one of human beings' most brilliant inventions. No other species, to my knowledge, uses them.

Here are the difficult background facts. At a Russell Group kind of university, there are about 20 applicants for every place on a law degree, 18 for a history degree, 15 for an English degree, 14 for economics, seven for physics, and five for biology. Moreover, these courses cost very different amounts to put on. I don't mean to upset people, but it really just makes no sense to set the same charge for items that are plainly different.And the same goes, profoundly, for different universities. They need to vary their prices, too. Is this being cruel on the poor? No. We do not fix the price of grapes to be equal to the price of pineapples on the grounds that the poor like pineapples, too. It is inefficient to react to huge excess demand – whether for skimobiles in winter or business degrees at Ucas time – by sticking to a low or even zero price. It is also unethical.

Take a hypothetical clever high-school student from a family earning £200,000 a year. Let us call her Judy. She wants to do a business degree at University 7 in the British pecking order. If we charge her the same as hard-up Kilroy, doing an unpopular course at an unpopular university, what happens? First, we are missing an opportunity to help Kilroy. Judy will happily pay up for her valuable, fancy degree. If we care about social justice, we take cash from variable fees and plough it into aid or better lecturers for Kilroy. Second, if we run away from variable fees, we forever create an unequal distribution of wealth. Lucky Judy picks up a lifetime advantage unjustifiably. She gets a Titian for the price of a Marks & Spencer watercolour. There is nothing fair about that. Mr Livingstone has shown his mettle and deserves promotion.

The writer is professor of economics at Warwick University